China to limit credit for some home purchases

Source : Business Times – 7 Jan 2010

It aims to curb speculation and prevent prices from rising rapidly

China will limit credit for some home purchases to reduce speculation and rein in surging prices, Housing Minister Jiang Weixin said.

The nation will ‘further restrict credit for the purchase of second homes and curb speculative housing investments,’ Mr Jiang said in a statement on the ministry’s Web site yesterday after an annual work meeting. He didn’t elaborate.

Premier Wen Jiabao pledged on Dec 27 to tackle ‘excessive’ real-estate gains in some cities.

Prices across 70 cities rose at the fastest pace in 16 months in November, fuelling concern that record lending and inflows of capital from abroad are creating asset bubbles in the world’s third-biggest economy.

‘They are trying to prevent a full-blown bubble,’ said Lee Wee Liat, a Hong Kong-based property analyst at Nomura International Hong Kong Ltd.

Mr Lee sees potential bubbles in real estate in cities including Beijing, Shanghai, Shenzhen and Guangzhou.

Mr Jiang said China will add to stocks of low-cost housing in cities with high prices. The government will also crack down on property hoarding by developers and fake pricing and sales, and ensure that housing demolition is legal, he said.

Xia Haijun, the chief executive officer of Evergrande Real Estate Group Ltd, told reporters in Hong Kong yesterday that the company is ‘not a developer that hoards land’.

Evergrande is negotiating with officials in Guangzhou over a site that newspapers said has been repossessed.

‘We should scrap or adjust local property policies launched last year that no longer comply with current macroeconomic goals,’ Mr Jiang said, without being more specific.

Premier Wen said last year that the government should use tools including taxes and loan interest rates to restrain property prices that have ‘risen too quickly in some areas’.

Developers listed in China dropped on Wednesday the most in two weeks on concern the government will implement a nationwide tax on the value of a property for the first time.

Speculation was fuelled by a Shanghai Securities News report which said China plans to expand a trial of a real-estate tax, citing an unidentified person close to the State Administration of Taxation.

China won’t introduce a property tax this year because the government wants to keep the real-estate market stable, Hingyin Lee, Colliers CRE plc’s director of research and advisory for eastern China, said at a briefing in Shanghai on Tuesday.

The government this month reimposed a sales tax on homes sold within five years of their purchase, after cutting the period to two years in January 2009 to bolster a flagging property market.

China may raise downpayment requirements for purchases of second homes to 50 per cent, Beijing Business Today reported on Dec 21, citing an unidentified person. The current level is 40 per cent, the newspaper said.

Local governments are already tightening property rules. In Shanghai, home buyers must prove they are first-time purchasers before benefiting from a reduced tax on transactions, the city government said Dec 31.

In the south, Shenzhen will start a three-month crackdown on property speculation from yesterday, China Business News reported, without citing anyone.

Authorities will inspect local developers to determine if they have conducted unlawful activities such as selling apartments before buildings are completed, false advertising and the hoarding of apartments, the newspaper said on its Web site.

In November, real-estate prices in 70 major cities rose 5.7 per cent from a year earlier, compared with 3.9 per cent in October. December’s figures are due to be released next week.

China’s policy makers are trying to ensure an economic rebound and at the same time prevent excessive liquidity in the financial system from creating bubbles in stocks and property.

Liu Mingkang, the nation’s top banking regulator, wrote in an opinion piece in Bloomberg News this week that ’structural bubbles threaten to emerge’.